New Study Finds High Costs and Few Benefits from Protectionist Buy American Act
Some Americans may be surprised to learn (or perhaps not, given trillion-dollar budget deficits) that a federal law requires the government to pay inflated prices for many of the products it buys. Passed in 1933, the Buy American Act (BAA) grants, with some exceptions, a significant price preference to US-produced goods and materials in federal procurements. By tilting the playing field against less expensive imported products, the law means the government must spend more money, and purchase fewer goods, or some combination thereof.
While government has never been a byword for efficiency, such protectionism makes it even less so.
Although the flaws of BAA protectionism have long been recognized, quantifying its damage is no easy task. That, however, hasn’t stopped a group of economists from taking a crack. In a recent paper, four economists attempted to calculate the law’s cost by constructing a dataset of federal purchases and then comparing the share accounted for by foreign firms to private sector consumption of imports.
Their finding: Buy American requirements have created up to 100,000 jobs at a cost of $111,500-$137,700 jobs. With production and nonsupervisory employees in goods-producing jobs averaging about $65,000 annually in wages, that’s hardly a stellar return on investment.
Even worse, this cost per job is likely to increase. While manufactured items have traditionally been required to have at least 50 percent of their materials of US origin to be considered domestic, that’s set to rise to 75 percent by 2029. The economists project this tightening of restrictions will create a further 41,300 jobs at a cost of $154,000 to $237,800 each.
For perspective, these 141,300 current and future positions (maximum) created by BAA protectionism amount to just 1.1 percent of the country’s nearly 13 million manufacturing jobs. Furthermore, such costly job creation comes amid concerns over a national labor shortage (including by manufacturers).
Not surprisingly, the paper’s authors found “scant evidence of the use of Buy American rules as an effective industrial policy.”
And the Buy American Act isn’t the only law with domestic content requirements on the books.
The Buy America Act—included as part of the Surface Transportation Act of 1978 and since expanded by the Build America, Buy America Act passed in 2021—requires that federally funded infrastructure projects use domestically produced iron, steel, manufactured products, and construction materials. The Berry and Kissell Amendments, meanwhile, require the Departments of Defense and Homeland Security to purchase certain items that are entirely domestic in origin.
Given their similarity to the BAA, there’s good reason to think these laws produce similarly meager results in exchange for outsized costs—many of which aren’t easy to capture.
Buy America requirements, for example, can lead to delays on infrastructure projects (with attendant impacts on cost) as time is spent finding materials with sufficient domestic content or jumping through various hoops to obtain a waiver of the law. The Berry Amendment, meanwhile, restricts servicemembers’ selection in finding comfortable running shoes—how does one calculate the cost of uncomfortable footwear?
Yet another cost of such protectionism is its role in undermining international support for a free and open trading system. If the United States won’t follow the path of free trade, why should others? When Americans embrace protectionism, they shouldn’t be surprised when their trading partners follow suit (indeed, some BAA supporters advocated the measure’s 1933 adoption to counter a cotemporaneous “Buy British” campaign).
Economic theory holds that wealth and prosperity are maximized by allowing goods and services to be purchased from their most efficient producers. By preventing such free exchange, the Buy American Act and related laws unnecessarily inflate costs for little gain. In other words, this latest study about the BAA’s costs only confirms economic common sense: forcing the country to pay more for products is an act of self-impoverishment.
The Buy American Act’s over ninety-year existence has provided ample time to study and demonstrate the counterproductive effects of such protectionism. Policymakers looking to advance the country’s fiscal health, good governance, and sound trade policy would be well advised to incorporate the long-overdue demise of the BAA—as well as related laws—into their agenda.